Toda (TSE:1860) Is Due To Pay A Dividend Of ¥20.00
The board of Toda Corporation (TSE:1860) has announced that it will pay a dividend on the 29th of June, with investors receiving ¥20.00 per share. This takes the annual payment to 3.1% of the current stock price, which is about average for the industry.
Toda's Projected Earnings Seem Likely To Cover Future Distributions
We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, Toda's dividend was only 35% of earnings, however it was paying out 175% of free cash flows. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.
Looking forward, earnings per share is forecast to fall by 3.0% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 45%, which we are pretty comfortable with and we think is feasible on an earnings basis.
View our latest analysis for Toda
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2015, the dividend has gone from ¥7.00 total annually to ¥40.00. This works out to be a compound annual growth rate (CAGR) of approximately 19% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that Toda has grown earnings per share at 12% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.
In Summary
Overall, we always like to see the dividend being raised, but we don't think Toda will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Toda has 4 warning signs (and 2 which shouldn't be ignored) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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